Franc Defended, but the Battle May Go On

France and Germany appeared today to have won the week's battle against the currency markets to maintain the value of the franc, providing Europe an opportunity to salvage what is left of its monetary system.

The franc could still come under renewed pressure next week, and traders and analysts were reluctant to say that the currency crisis that has roiled European politics and economic policy was over.

But the franc strengthened in value for the second consecutive day, and analysts said the waves of speculative selling that battered the currency earlier in the week were clearly ebbing.

"The immediate crisis is over as far as the French franc is concerned," said Bernard Godement, an economist at the Nomura Research Institute in Paris.

The franc closed today in European trading at 3.380 to the mark, stronger than its level of 3.3981 at the close on Thursday. Traders reported continued buying of francs and selling of marks by the Banque de France and the Bundesbank, but at lower levels than in previous days. Under the terms of the European Exchange Rate Mechanism, Germany and France are obligated to keep the franc from becoming any weaker than 3.4305 to the mark, a level that the currency had come very close to reaching earlier in the week.

The central banks have been intervening heavily in the markets in the last several days, and France has pushed up short-term interest rates to make it more expensive for investors and speculators to borrow funds to bet on a fall in the franc's value.

Germany and France had said on Wednesday that they would work together to head off the speculative attack on the franc, which if successful would have effectively brought the European system of stable exchange rates to an end.

The success of France and Germany and their central banks in heading off a devaluation of the franc, at least for now, leaves Europe's monetary system alive but barely functional.

Britain and Italy have pulled out of the system, unable to prop up the value of their currencies, and it is unclear when, or if, they will return. Spain, Ireland and Portugal have managed to stave off devaluations of their currencies, but only by resorting to a technique at odds with the spirit of the single European market, if not its law: placing restrictions on the flow of funds in and out of the country. Two-Tier Europe

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There is now virtually no chance that the 12 nations of the European Community can reach their goal of developing a coordinated monetary policy and a single currency by 1999, the target date laid down in the Maastricht treaty on European unification. Creating a single currency, and thereby eliminating the uncertainty and instability that fluctuating exchange rates cause for businesses trading across European borders, is a cornerstone of the community's attempts to create a true single market.

Germany and France, however, have demonstrated that the link between their currencies is sufficiently strong that the two nations could move on their own, if they chose, to meld their monetary policies and currencies into a miniature version of the European goal.

As a result, there were growing calls today from government officials and economists for a "two track" approach to European monetary unification. The members of the fast-track core group would be Germany, France, Belgium, the Netherlands, Luxembourg and perhaps Denmark. They would initially lock their currencies together with fixed exchange rates, and perhaps issue a single currency later in the decade.

"Germany, France and the Benelux countries could start immediately," Alfons Verplaetse, the governor of the Belgian central bank, said in a radio interview today. Outside Core Group

The other European Community nations, including Britain, Italy and Spain, would probably try to keep the relative values of their currencies within a stable range. But they would not attempt to join the core group until they whipped their own economies into shape and stabilized their currency values.

"It's now a matter of fact that we have a two-tier Europe, whether the politicians recognize it or not," said Christian Dunis, a currency analyst at the Chemical Bank in London.

Officials said the prospects for a two-track system would increase if, as seems increasingly likely, the Maastricht treaty is not ratified by the end of the year by all 12 European Community nations.

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A version of this article appears in print on September 26, 1992, on Page 1001033 of the National edition with the headline: Franc Defended, but the Battle May Go On. Order Reprints|Today's Paper|Subscribe